Treatment of Imported Machinery from Germany by Godrej Limited for Sale and Production

Godrej Limited has imported machinery from Germany, which can be used for two purposes - sale and production. In this scenario, it is essential to understand the treatment of these imported machinery for accounting purposes. The following are the steps to be taken for the treatment of imported machinery:

1. Import Cost: The cost of machinery includes various expenses incurred while importing, such as freight, insurance, custom duty, and other charges. The import cost will be added to the cost of machinery, and the total cost will be treated as the acquisition cost.

2. Depreciation: The imported machinery will be used for production purposes, and it will have a useful life. The useful life of machinery determines the rate of depreciation. The depreciation will be charged on the acquisition cost of machinery.

3. Treatment of Import Duty: Custom duty paid on imported machinery is treated as a part of the cost of machinery. It will be added to the acquisition cost of the machinery.

4. Treatment of IGST: IGST is Integrated Goods and Service Tax. It is a tax charged on the import of machinery from Germany. The IGST paid on imported machinery is treated as an input tax credit, which can be used to offset the output tax liability.

5. Accounting Treatment for Machinery Sale: If Godrej Limited decides to sell imported machinery, the sale proceeds will be credited to the machinery account. The difference between the sale proceeds and the book value will be treated as a profit or loss.

Conclusion

In conclusion, the imported machinery from Germany by Godrej Limited will be treated as an asset. The acquisition cost will be the sum of the cost of machinery and the import cost. Depreciation will be charged on the acquisition cost, and the custom duty will be added to the cost of machinery. IGST will be treated as input tax credit. In case of machinery sale, the difference between the sale proceeds and the book value will be treated as profit or loss.

The first machinery will be treated as goods, and secondary machinery will be treated as fixed asset.